After its broad-based reset in 2022, new funding for the global InsurTech sector rose to $1.39 billion during the first quarter of 2023, up 37.6% from $1.01 billion in Q4, 2022, its lowest quarterly total since Q1, 2020. Average deal size was up 25.3%, but deal count remained steady. Mega-round funding accounted for only 12.9% of the total, the lowest since the 2020 Q1 dip, according to the latest Global InsurTech Report from Gallagher Re, the global reinsurance broker.
P&C InsurTech funding drove the quarterly investment increase, as it surged by more than 53% to $967.89 million. L&H fundraising also grew, rising 9.6% to $420.73 million. Total early-stage funding was $423.59 million, although early-stage L&H funding plunged 44.3% relative to Q4 2022, to $119.04 million. The average early-stage deal was up by 28% to $8.31 million. The majority of investments by (re)insurers went into early-stage rounds, a trend now observed for six consecutive quarters.
The overall funding totals suggest that 2023 may mark a return to the more ‘normal’ levels of gently rising InsurTech funding experienced before 2021, when 62% of investments were through mega-rounds, compared to 41% in 2022.
Dr Andrew Johnston, Global Head of InsurTech at Gallagher Re, says: “2023 may be the beginning of a new era for InsurTech. 2021 undoubtedly marked the funding peak, fuelled by Covid-19 uncertainty and an organically occurring crescendo. The sector came back down to earth in 2022, leading to some serious restructures, cost-saving actions, and new business strategies. A lot of companies did not make it through.
“Founders are now thinking about long-term sustainability and growth, and realizing their businesses will need to pull the plough themselves, reliant on their own capabilities and revenues,” Johnston continued. “A significant upside seems to be the genuine willingness of many (re)insurers, brokers, and agents to adopt technology. The pressure is therefore on InsurTechs to make their businesses palatable and value-adding.”
Global InsurTech Report
The Q1 edition of Gallagher Re’s Global InsurTech Report is the first of four reports in 2023 to focus on the lifecycle stages of InsurTech funding, defined as:
- Early-stage incubation rounds (angel, convertible note, pre-seed, seed, and seed VC)
- Early-stage acceleration rounds (series A)
- Mid-stage expansion rounds (series B & C)
- Late-stage growth and view-to-exit rounds (series D, E+, growth equity, PE, exits and corporate majority)
The report therefore presents multiple case studies of InsurTechs whose most recent round of funding fits the incubation criteria. These include Mulberri, an embedded insurance platform for employers; Otonomi, a parametric cargo insurer; Micruity, which delivers retirement savings plans in North America; SnapHealth, a price comparison platform; and Fursure, a pet insurance and services site.
The Report’s ‘Thoughts from Investors’ features a Q&A with Brian O’Reilly, Head of Innovations at Greenlight Re Ventures. Brian shares his views on strategic investments and capacity support for early-stage InsurTechs. ‘Deal of the Quarter’ looks at Kita, a carbon insurance specialist with a stated mission of helping to reduce risk in carbon-credit transactions through insurance. In February Kita’s oversubscribed seed round raised £4 million, led by Octopus Ventures.
Thought Leadership is delivered by Gopi Rangan, a founding partner at Sure Ventures, a Silicon Valley venture capital firm investing in early-stage startups. He sees 2023 as “the year of collaboration,” when “corporations and venture capital firms will learn to work closely with each other.”
‘View from the Industry’ comes from Deepon Sen Gupta, Gallagher Re’s Global Head of Strategic Advisory. Sen Gupta says: “Despite the chequered financial performance of InsurTechs, they have successfully continued to attract funding, driven partially by investors chasing yield, but also by tech-oriented investors applying tech-style funding philosophies – and valuations. However, investors are increasingly focussed on obtaining a return on their capital, and understanding payback periods. Rather than just being hypnotized by the size of the total addressable market, they are now keen to see a genuine need for an InsurTech’s existence.”
Finally, the Q1, 2023 edition of the Global InsurTech Report looks at InsurTech ecosystem partner InsurTech Gateway, which aims to provide expertise, resources, and funding to shape new risk solutions, de-risk InsurTech members’ launch, and ready them for adoption.